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Strategic alliances with potential competitors

1. What Kind of companies stand to gain the most from entering into strategic alliances with potential competitors? Why?

INTRODUCTION

The term ‘strategic alliance’ refers to the process of joining together two or more businesses for a set period of time. The strategic alliance is an integration between two or more corporate for mutual benefits. The businesses which enter into strategic alliances need not necessarily be indirect competitors. However these businesses may be offering similar products or services to the same target audience. The main aim of strategic alliance is to combine the resources, capabilities and core competencies with a view to pursue mutual interests of the business to be combined.

Strategic alliances take place in different-forms which include direct co-operation, joint ventures and minority investments. Wide range of products and services are available to the customers as a result of strategic alliances. The organizations which enter into alliances enjoy many privileges. These benefits include increase in number of sales people, increase in marketing and advertising budget, large number of skilled people and improvement in technology.

DESCRIPTION

Strategic Alliances are agreements between firms in which each commits resources to one another in order to achieve a common set of objectives. Companies may form Strategic Alliances with a wide variety of players: customers, suppliers, competitors, universities or divisions of government. Through Strategic Alliances, companies can improve competitive positioning, gain entry to new markets, supplement critical skills and share the risk or cost of major development projects.

Strategic alliance with potential competitors would provide more advantages to the companies. The well established companies which have already been part of an industry would possess good client base. Upon the alliance agreement, the client base is shared by both the companies. Thus, the companies may reach their customers easily irrespective of the distance they reside. Similarly the area of operations of the companies would positively be increased which could be another advantage than can be enjoyed by the alliance partners.

Devlin and Bleackley (2002) stated that because of implementation problems associated with differing management styles, cultures, operational practices and degrees of control, not too many firms can point to having positively capitalized on the potential advantages.

One of the key factors for the development and growth of business is found to be the fast growing technology. In every line of business more and more technology is adopted from time to time. This could result in the excellence and speed operations of businesses in order to withstand in the dynamic and competitive market. The technology adopted in the same line of business would be similar from one company to another. However, the cost of technology may not be affordable for every company. In such a circumstance, by entering into strategic alliance with potential competitors, the alliance partners could share the technology adopted.

In a similar position, the skilled man power can also be shared and exchanged by the companies who enter into strategic alliances. Thus, the perfection in the products and services could be enhanced with the help of shared manpower. The experience they have gained, the methodology they have followed and the techniques they have understood and used could also be shared when a strategic alliance is entered into.

In a perfect market, the potential competitors are those who have identical potential, market share, line of activities, target markets etc. The potential competitors might have affected each other’s productive sales but when an agreement is reached and documented between these potential competitors they could become the leaders of the market and the market could be driven by them thus increasing the barriers to entry.

Koza and Lewin (2000) stated that raising the odds of success of strategic alliances can have important performance consequences. It requires recognition that alliances are embedded in the strategies of each of the partners. The odds of success increase when the symmetry in the strategic exploitation/exploration intent of the partners is present at the start and is re-calibrated and maintained over time.
The companies of different kinds, enter into strategic alliances. In a vertical integration, the companies with supplier-customer relationship enter into alliances. On the other hand, in respect of horizontal integration, the companies in the similar capacity or the companies which target the same audience enter into alliances. However in a sense both the types of integration are useful for companies under different circumstances. The alliance should enable each other to develop and grow in the competitive environment. It is possible only when the resources are shared and fully utilized.

The alliance between banking companies is a unique and useful integration. All the benefits available from strategic alliances may be enjoyed by the banking companies which enter into strategic alliances. The growth of a banking company can be measured in terms of its branch strength. In order to achieve higher levels of success, the banking companies make attempts frequently for branch expansion.
When more branches are being opened or expanded, a banking company enjoys two benefits, viz, expansion of area of operation and increase in the customer base. Both these benefits contribute to the growth of business of banking companies. When more branches are opened by a banking company, the distance between customers and branches is reduced to a greater extent. The proximity makes the customers to deal with a particular branch. Similarly, it is obvious that as the number of branches increases, number of customers also increases. Thus both the benefits of branch expansion are enjoyed by banking companies.

Moreover, since the banking industry is a knowledge based industry and deals more with the customers, skilled and talented manpower and its administration is essential. It is also to be noted that the growth of a banking company can be determined by the crucial factor – the excellence of intellectual capital. Each company is not supposed to possess the employees of equal talents. However, the intellectual capital can be shared by the companies when they have a partnership agreement. Thus, banking company is one of the prospective companies which could get maximum benefits from strategic alliance with potential competitors.

In the case of alliances by other kinds of companies, the benefits available will differ from one company to another based on the nature of the companies. However in respect of banking companies, they have almost similar functions of dealing with public and government money. They accept deposits and lend advances to the customers. These primary functions of banking companies would not be different from different companies.

Upon entering into strategic alliances with potential competitors, the banking companies extend their scope through branch expansion. The growth of a banking company can be measured in terms of its branch strength. They reach the customers at various places because of the strategic alliances. The success of banking companies rely, to a greater extent, upon the excellence of management and administration when two or more banking companies proceed for strategic alliances.

For small businesses, strategic alliances are a way to work together with others towards a common goal while not losing their individuality. Alliances are a way of reaping the rewards of team effort - and the gains from forming strategic alliances appear to be substantial. Companies participating in alliances report that at much as 18 percent of their revenues come from their alliances. Strategic Alliances successfully integrates corporate strategy and workforce planning.

The strategic alliance has been found to be the source of elimination of competition. Elimination of competition is one of the strategies to be adopted for the development of business organization. However a lot of issues and concerns are there before the companies actually enter into the alliances. These issues and concerns include parallel existence of branches at same places, lack of technology, lack of availability of skilled manpower, etc.

After having resolved these limitations, by entering into strategic alliances, the competition is eliminated. As a result, the business grows rapidly in all directions and there is a substantial increase in market share. The alliance entered into between potential competitors should bring in more advantages to the alliance partners. As stated above, the advantages of strategic alliances for different kinds of companies differ with each other.

CONCLUSION

The strategic alliance between companies provide benefits of sharing of resources. An alliance with potential competitor eliminates the severity of the competition and helps the company to maximize the perfection in operations. Branch expansion, increased client base, shared knowledge and resources, shared technology and wide scope of operations reveal that the banking companies stand to gain the most from entering into strategic alliances with potential competitors.

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